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Limited company contractors only have to wait a few more weeks before they can raise their voice on the plans for putting the taxman higher in the hierarchy for payment in case they go bankrupt.

Consultants for these businesses highlighted that the plan’s consultation was conceived in the October’s Budget 2018 and it is now closing as the May 27th approaches near.

Overall, the 16-page document consisted of seven questions, though personal service companies are mainly troubled due to a single concern—the elevation of the HMRC in ‘the order of priority’ when they go bankrupt.

Moreover, like 2002, the Revenue can be classified as a Preferential Creditor, as opposed to its previous lower status as an Unsecured Creditor.

According to an insolvency body, R3, with no expiry date or time limit for owed money by the insolvent company to the HMRC, the proposal is well beyond the reasonable limits. They even pointed out that the proposal is older than the Crown Preference [pre-2002].

The body explained that in the past, preferential status was only enjoyed by tax debts up to a year; in contrast, now regardless of a tax debt’s history, it will be moved up in the order.

Another major concern is the fact that the proposal which will be introduced in April 2020 can provide a bigger role to the Revenue pertaining to the insolvency processes, like needing tax officials in approving the insolvency process’ parts.

Hence, R3 has cautioned that there is a possibility of a bottleneck risk which is intensified further because of the knowledge that the current approach from HMRC is prone to cause delays.

R3 maintains that for HMRC’s claims like the involvement of tax personnel in the process and for the tax debts’ age, they need a three-fold cap. They warned that this proposal is expected to create permanent damage and its drawbacks will outweigh its benefits. Therefore, they advised the government to change their planning; if it is not possible then they should at least re-adjust the proposal’s scope.

The government also received input that it can get more success from insolvencies when HMRC will began to be more actively involved in the current procedures. The body referred to this as a better strategy in comparison to the creditor queue jump. They stated that,

“Moving HMRC up the priority list will also impact on unsecured creditors, including the company pension scheme, some employee claims, and the company’s suppliers or customers.”

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